Busn 379 Final Exam Corporate Finance Multiple Choice Questions

BUSN 379 Final Exam
Corporate Finance – Multiple Choice Questions – Part II

1. Which one of the following activities best exemplify working capital management?
Sale long-term bonds to raise funds for a new machine.
Determine the return of a potential project.
Calculate the cash flows for a project.
Manage payments to suppliers.

2. Book values are different from market values because:
Book values reflect the value of the asset based on generally-accepted accounting principles.
Book values are used in the company’s balance sheet.
Book values do not reflect the amount someone is willing to pay today for an asset.
All of the above
None of the above

3. Use the following tax table to answer this question:

Taxable income Tax rate
0 – 50,000 15%
50,001 – 75,000 25%
75,001 – 100,000 34%
100,001 – 335,000 39%
335,001 – 10,000,000 34%

McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company’s approximate average tax rate?
27%
29%
31%
33%
35%

4. Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 20.10 percent for a new automobile loan. You should choose ______________ because its _______ is lower.
Regional Bank, APR
Local Bank, EAR
Regional Bank, EAR
Local Bank, APR

5. You deposited $11,000 in your bank account today. Which of the following will decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply:
a decrease in the interest rate
increasing the initial amount of your deposit
increasing the frequency of the interest payments
decreasing the length of the investment period

6. You want to have $15,000 for a down payment on a house five years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?
$7,858.11
$8,141.40
$9,803.58
$12,464.28
$14,213.25

7. The new home that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment?
$2,291.89
$2,809.10
$3,287.46
$3,412.67
$4,145.68

8. Which type of loan is comparable to the present value of a future lump sum?
effective annual rate
amortized
interest-only
annual percentage
pure discount

9. Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond, if the YTM is 11 percent? Assume annual payments.
$1080
$1085
$925
$1000

10. The market where new securities are offered is called the _____ market.
primary
main
secondary
principal
dealer

11. Which one of the following statements concerning financial leverage is correct?
Financial leverage increases profits and decreases losses.
Financial leverage has no effect on a firm’s return on equity.
Financial leverage, refers to the use of common stock.
Financial leverage magnifies both profits and losses.
Increasing financial leverage will always increase the earnings per share.

12. SmithKline Company’s bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity?
6.96%
7.69%
11.0%
12.1%

13. Which of the following is true regarding bonds?
Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.
None of the above is true

14. Which one of the following bonds is the most sensitive to interest rate movements?
zero-coupon, five year
seven percent annual coupon, five year
zero-coupon, 10 year
five percent semi-annual coupon, 10 year
five percent annual coupon, 10 year

15. A sinking fund is an account managed by a bond trustee for the sole purpose of:
paying interest payments on a semi-annual basis.
redeeming bonds early.
repaying the face value at maturity.
paying the expenses required to reissue outstanding bonds.
paying the “balloon payment” at maturity.

1. Which of the following is true regarding put bonds?
Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back

2. The term debenture refers to
long-term, secured debt.
long-term, unsecured debt.
the after-acquired property clause.
a document covering the specific terms of the debt issue.

3. Company A has a bond outstanding with $90 annual interest payment, a market price of $820 and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s coupon rate and current yield, respectively?
11% and 9%
9% and 11%
9% and 14%
Cannot be determined
None of the above

4. Which of the following does not reduce collection float?
installing a lockbox system.
deposit collections weekly, instead of daily.
requiring all customers pay by cash, rather than with check.
utilize the benefits of the Check Clearing Act for the 21stCentury.

5. Storage and tracking costs, insurance and taxes, and losses due to theft are examples of:
Inventory depletion costs
Sunk costs
Carrying costs
Shortage costs